Why Is Fraser & Neave Holdings Bhd No Longer What It Used To Be?

Fraser & Neave Holdings Bhd (KLSE: F&N) is one of the oldest and largest food & beverage manufacturers listed in Malaysia. To name a few, its main portfolio of brands include F&N, 100 Plus, Season’s, Teapot and Magnolia and they are now distributed across a network of over 220,000 outlets in Malaysia, Thailand, Laos and Cambodia. As of 23 December 2019, F&N Bhd is valued at RM 12.65 billion in market capitalisation. 

Since July 2015, F&N Bhd has undertaken a reorganisational exercise to align its business with F&N Ltd and ThaiBev’s Vision 2020. Hence, F&N Bhd has changed its segmental reporting to F&N Malaysia and F&N Thailand respectively. Here, I will be covering on their developments since its reorganisation exercise, recent financial results, and valuation figures.

Thus, here are 11 things to know about F&N Bhd before you invest: 

• F&N Malaysia
  F&N Malaysia had reported continuous drop in revenues from RM 2.59 billion in 2015 to RM 2.16 billion in 2019. This is because of intensifying competition and softer consumer sentiment in the period. Its operating profits had fallen from RM 226.3 million in 2015 to RM 161.1 million in 2019. This is due to higher material costs incurred during the period.
  
  
  

Note:
2017 Operating Profit Figure excludes one-off restructuring cost of RM 48.9 million.

• F&N Thailand
  F&N Thailand had achieved a CAGR of 6.0% and 34.4% in revenues and operating profits. Revenues had increased from RM 1.51 billion in 2015 to RM 1.91 billion in 2019. Operating profits had grown from RM 111.1 million in 2015 to RM 362.0 million in 2019. It is due to a rise in volume of sales in Thailand, export sales in Laos and Cambodia and higher Thai Baht against the Ringgit during the period.
  
  
  

• Group Financial Results
  Overall, F&N Bhd has maintained group revenues at RM 4.0 – 4.1 billion per annum. This is because sales growth in F&N Thailand had offsetted sales decline in F&N Malaysia. F&N Bhd has achieved a CAGR of 10.01% in shareholders’ earnings for the past 5 years. It has increased from RM 280.1 million in 2015 to RM 410.3 million in 2019. During the period, it has attained a 5-Year Return on Equity (ROE) of 16.47% a year. It means F&N Bhd has made on average RM 16.47 in annual earnings from every RM 100.00 it has in shareholders’ equity from 2015 to 2019.
  
  
  

• Cash Flow Management
  From 2015 to 2019, F&N Bhd had generated RM 2.10 billion in positive operating cash flows. Out of which, it has spent on the following:
  
  – RM 691.8 million in net capital expenditures (CAPEX).
  – RM 240.2 million in repayments of net long-term borrowings.
  – RM 1.06 billion in dividend payments to rewards its shareholders.
  
  Overall, F&N Bhd had increased its cash balance from RM 409.1 million in 2015 to RM 569.7 million in 2019. This shows that F&N Bhd has been efficient in generating cash flows and had chosen to pay 50% of it to its shareholders in the form of dividends. Then, it reinvest a portion of the balance into sustaining growth into the future.
  
  
  

• Balance Sheet Strength
  In 2019, F&N Bhd has RM 123.3 million in total loans & borrowings and RM 2.53 billion in shareholders’ equity. Hence, its gearing ratio is 5%. In addition, F&N Bhd has RM 1.76 billion in current assets and RM 795.0 million in current liabilities. Thus, its current ratio is 2.21.
  
  
• Major Shareholders
  As of 29 November 2019, F&N Bhd’s 5 largest shareholders are listed as follows:
  
  

No.	Shareholders	Shareholdings (%)
1	Fraser and Neave, Limited	55.48%
2	Employees Provident Fund Board	10.65%
3	Amanah Saham Bumiputera	7.05%
4	Kumpulan Wang Persaraan (Diperbadankan)	2.37%
5	Exempt An for State Street Bank & Trust Company	1.12%

• Growth Prospect 1: Ongoing CAPEX Projects
  In 2019, F&N Bhd has invested RM 150 in CAPEX projects. Presently, its ongoing projects include:
  
  

No.	CAPEX Projects	Value (RM Million)	Estimated Completion Period
1	Shah Alam Warehouse	78	2021
2	New Equipment to Produce Smaller F&N Can Products in Shah Alam	30	2020
3	Kota Kinabalu Industrial Park (KKIP) drinking water line and warehouse	20	2020
4	Fresh Milk Line in Pulau Indah	40	2020

• Growth Prospect 2: Mega Dairy Farm Project
  On 6 November 2019, F&N Bhd had announced that it will be investing RM 650 million to establish Phase 1 of its Mega Dairy Farm Project. The investment includes the proposed acquisition of 4,454 hectares (Ha) of site at Ladang Chuping in Perlis, where F&N Bhd plans to allocate 3,000 Ha of its site to crop farming to supply corn to its dairy farm that would have a capacity to house 20,000 dairy cows which can produce as much as 200 million litres of fresh milk per annum.
  
  
• P/E Ratio
  As of 23 December 2019, F&N Bhd is trading at RM 34.48 a share. F&N Bhd has a current P/E Ratio of 30.81 based on earnings per share (EPS) of RM 1.119. The current P/E Ratio is higher than its 5-year average of 28.42.
  
  
  

• P/B Ratio
  In 2019, F&N Bhd has net assets of RM 6.90 per share. Thus, its current P/B Ratio is 5.00, which is above its 10-year average of 4.66.
  
  
  

• Dividend Yields
  In 2019, F&N Bhd has paid out 60.0 sen in dividends per share (DPS). It is an increase from a consistent payout of 57.5 sen in DPS for the past 4 years from 2015 to 2018.
  
  If F&N Bhd is able to maintain its DPS at 60.0 sen for subsequent years, it is offering a dividend yield of 1.74% per annum, which is below its 5- year average of 2.22% per annum.
  
  
  

VIA’s Verdict 

Since its reorganisation exercise, F&N Bhd has delivered an increase in earnings to its shareholders as a result of better results obtained from F&N Thailand that offsetted a marginal deterioration from F&N Malaysia. F&N Bhd remains active in its quest to sustain future growth by investing into production of fresh milk in Perlis. In terms of valuation, F&N Bhd is trading above 30 in P/E Ratio and is offering below 1+% in dividend yields, which is below the local FD rates offered in Malaysia. 

So, would you invest in F&N Bhd at RM 34.48 a share today? 

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